Rosenberg & Estis, P.C. Bankruptcy Updates & Protecting Creditors’ Rights: Silicon Valley Bank’s Parent Files Bankruptcy, Signature Bank is Acquired After its Collapse, and Credit Suisse is Acquired to Avoid its Collapse

by | Mar 23, 2023 | Industry Updates

Silicon Valley Bank’s Parent Files Bankruptcy

On March 10, 2023 it was announced that Silicon Valley Bank (“SVB”) effectively “collapsed” in the largest bank failure since the 2007–2008 financial crisis. Regulators seized and transferred SVB into a receivership under the Federal Deposit Insurance Corporation (“FDIC”) which created bridge banks to assume the deposits and obligations of SVB’s banking business while the FDIC oversees the attempts to sell the business. A week later, a class action lawsuit was filed against SVB’s parent company, SVB Financial Group. By Friday, March 17, 2023, SVB Financial Group filed Chapter 11 bankruptcy in the United States Bankruptcy Court for the Southern District of New York. Since the SVB banking units have been seized and placed into a receivership by the FDIC, they are not part of their former parent’s bankruptcy. On March 20, 2023, the FDIC, as receiver for SVB, filed an objection to SVB Financial Group’s motion in the bankruptcy court seeking to transfer its accounts with SVB bridge banks to a new financial institution. The objection appears to reflect the dispute that will ensue over the limited assets, with SVB Financial Group, on the one hand, seeking assets to distribute to its creditors in bankruptcy and the FDIC, on the other hand, seeking to maintain assets for the benefit of SVB banking units in receivership.

Signature Bank is Acquired After its Collapse

On March 12, 2023, Signature Bank collapsed and was closed by regulators after customers reportedly withdrew more than $10 billion in deposits in what has become the third-largest bank failure in U.S. history. The FDIC was appointed as Signature Bank’s receiver and established a bridge bank to operate as it marketed its assets to bidders. On March 19, 2023, it was announced that New York Community Bank subsidiary Flagstar acquired a substantial amount of Signature Bank’s business, including most of its deposits and 40 former Signature branches. However, billions of dollars in Signature digital asset banking deposits and billions of dollars in Signature loans were excluded from the acquisition.

UBS Bank Acquired Credit Suisse to Avoid Its Collapse

Facing substantial financial losses, on March 19, 2023 it was announced that Swiss banking giant, Credit Suisse, would be acquired by another banking giant, UBS, in order to avoid Credit Suisse’s collapse.

Other Banks May Be Next

Since SVB’s collapse, several other banks have been mentioned in the news for facing similar potential issues. Many are speculating which banks will be next to succumb to continued liquidity concerns as well as pressure from declining share value.

How to Protect Yourself

R&E is continuing to monitor these developments as we actively work with clients to assess their risks and advise them. R&E is at the forefront of (1) formulating strategies for landlords concerned about tenants’ liquidity and access to letters of credit, (2) advising lenders and borrowers concerned about access to deposits and liquidity, and (3) guiding other businesses concerned about the present and potential future impact of this historical string of bank failures. R&E recommends that you conduct a review of any letters of credit that you are holding as security under a lease to ensure that they were not issued by the banks mentioned above and to confirm that the current credit rating of any other issuing banks conforms with the relevant lease requirements. Feel free to contact R&E with any questions that you may have or to seek any other assistance that you may require.